Credit for identifying the five-word phrase at the heart of the legal challenge goes to a lawyer named Thomas Christina. Unlike today’s conservatives, he allowed for the narrow possibility that his interpretation was incorrect—or at least the outgrowth of a legislative snafu. “This could be an unintended consequence,” he explained in his AEI presentation. “We’re not going to really know much until at least the spring of next year when there are proposed regs. But the lesson appears to be that there will be no tax credits for taxpayers who live in non-capitulating states, which is really quite extraordinary.”
Extraordinary not because it traced a path by which Republican governors could destroy the law by sitting on their hands, but because it was too coercive and thus vulnerable to a Constitutional challenge.
“This is dangling cash in front of voters,” Christina said. “I mean, really, you will end up in exactly the same place, whether you knuckle under or not, with one important difference, which is you won’t get re-elected if you turn down free money that might otherwise have been paid in the form of tax credits to your citizens. Nobody would be foolish enough to pick door number one. That I think—it fits very comfortably in what I’ve posited is this non-interference principle.”
For a time, Jonathan Adler—one of the conservative lawyers most closely associated with the subsidy challenge—bought into this line. He wrote that “under most conditional spending statutes, states may risk losing direct financial support if they fail to follow federal dictates. Here, however, it is state citizens who lose a financial benefit if their state does not act. This structure could create potential coercion concerns insofar as the Dole test focuses on whether the relevant conditions ‘interfere with the state’s sovereign accountability.’”
Only when the IRS announced it would issue subsidies universally did Adler and his partner-in-crime Michael Cannon—a CATO institute libertarian—change course. Where conservatives once argued the subsidy condition might be unconstitutionally coercive, they set about to force the government to make good on that very coercion. For a time, Cannon treated their reading of the law as the result of a “glitch.” Eventually the difficulty of undoing the ACA by exploiting a "glitch" dawned on them.To summarize: Christina and Cannon thought they had an angle to challenge the ACA if the turned out that the law required states to set up their own exchange to get the subsidies. turns out that when the IRS wrote the guidelines on subsidies, that angle went out the window: because the federal exchange got subsidies, there was no state compulsion, and therefore, no possibility for a court challenge on coercion grounds. Now, however, Cannon and his pals are trying to get the Supreme Court to say that, yes, the law did intend to coerce states, and that the IRS rule granting subsidies is illegal under the technical text of the ACA.
Let's suppose that plaintiffs prevail in the case and rule that federal exchange subsidies are illegal. There will be massive disruption to the health insurance system, obviously, but let's move past that. Congress won't do anything to pass a fix and guarantee the legality of subsidies on the federal exchanges. But even if states do step in and fill the void, guess what? It tees up unconstitutional coercion argument for Christina and Cannon as a pathway to destroying the entire bill.
Viewed in this light, it's possible that the entire point of the King v. Burwell case isn't just to try to hobble the law by throwing its regulatory structure out of whack--instead, it's just an intermediate step toward one final court challenge that could kill the whole thing.